Until recently, Greece served as financial tabloid fodder for the world’s media with many commentators peddling the usual cliches about the Greek work ethic, bureaucracy and aversion to order.
However, a closer look at the Greek crisis reveals more than just a country of cheats and sloths taking advantage of their European partners. Economists have warned about the unfair imbalances between the EMU members since its inception in 1999.
A German paper’s rant about hocking a couple of spare Greek islands to start paying off the country’s debt provided the necessary slapstick interlude. Then, three people were killed during the recent demonstrations in Athens and suddenly it’s no longer just an economic debate. As if it ever was.
The real problem with much of the vitriolic reporting surrounding the Greek financial crisis isn’t the predictable racial profiling and calls for retribution but the fact that few in the outside media have had any direct experience with Greek politics, finance or culture.
On face value, Greece is justifiably portrayed as the country that cheated on its budget statistics to slip into the European Monetary Union (EMU), with successive Greek governments blissfully ignoring some of the most uncompetitive market practices of any developed country in the world. The average retirement age in Greece is 53. Last year, Germany increased its retirement age to 67.
In Greece, public sector workers and pensioners receive multiple bonuses throughout the year and tax avoidance is rife (much of it by older, more established Greeks). The Greek public sector accounts for 40 per cent of the economy while tourism and shipping are the only major components of the private sector.
However, a closer look at the Greek crisis reveals more than just a country of cheats and sloths taking advantage of their European partners. Economists have warned about the unfair imbalances between the EMU members since its inception in 1999.
It took Christine Lagarde, the French finance minister, to articulate the essence of the problem.
“Those in deficit must reduce their deficit and those in surplus must be ready to consider not relying on a single motor and that they can perhaps stimulate growth by other means”.
Lagarde highlighted the obvious whilst taking an elegant swipe at Germany: Imbalance is a shared responsibility. Greece is responsible for most of its current problems.
However, the Eurozone’s inept handling of Greece’s recent troubles and the complicit blind eye of European governments to Greece’s behaviour since its entry to the EMU have played a major role in escalating the crisis.
For example, the European Statistical Agency, Eurostat, has been warning about the accuracy of Greek financial data for years but the major European countries have been too busy worrying about the Euro rather than the functionality of the Eurozone.
The self righteous look of shock on the face of many European politicians over Greece’s mess is palpable, but hardly convincing.
They all knew there were substantial problems with the Union and, for the most part, chose to defer the hard decisions and measures required to fix these weaknesses.
The irony of these same politicians now accusing Greece of displaying a similar lack of decisional fortitude seems lost on many commentators.
In the meantime, the Greek parliament has approved the austerity measures demanded by its Eurozone partners and the IMF in return for $155 billion but this only gives Greece some breathing space- not a solution.
The main problem for Greece is lack of competitiveness. Between 2000 and 2009, Germany’s deflator (a tool used to convert current dollars to inflation-adjusted dollars) increased 10 per cent. Greece’s soared 33 per cent.
Greek goods suddenly became more expensive under the Euro whilst French and German goods became cheaper than they were.
This jump in relative prices for Greece was the reason its current account deficit widened to 9.7 per cent of GDP. To make matters worse, the country’s fiscal deficit reached 13.7 per cent of GDP.
The only way to finance the shortfalls was through the issuance of more debt, which is now running at over 120 per cent of GDP. Therefore, the accumulation of another $155 billion of debt in the form of the Eurozone and IMF loan is in many ways adding to the problem.
Greece is going to have a very painful recession and it won’t be in control of its destiny for at least the next three years.
The Eurozone countries (led by Germany) and the IMF will be running things because they’re the ones now picking up the tab for Greece’s delusional ten year long party.
Whilst the dance floors and table tops of the bars and nightclubs might be a little more muted in deference to the unfolding austerity measures, the Rebetathika should be doing a roaring trade.
Time once again for Greece to sing the blues.
Harry Toukalas is the CEO of State Equity.